Organizational Governance Organizational Governance

Many Business Leaders See Sustainability as Costly Obligation Rather Than Investment in the Future

According to new Capgemini research, execs recognize the urgency for climate action; but limited impact is visible on the ground so far as they lack an overarching strategy, clarity on the business case and coordinated implementation.

Published 1 year ago | About a 4 minute read

Image: Kampus Production

While organizations recognize the need for sustainability action and most have announced net-zero commitments, there is still a gap between long-term ambition and short-term concrete actions — according to new a report from the Capgemini Research Institute, A World in Balance – Why sustainability ambition is not translating to action. The report also highlights that the business case for implementing sustainability measures is largely underestimated or misunderstood, with only 21 percent of executives believing that it is clear.

To understand whether companies are taking the urgent mandate of environmental sustainability sufficiently seriously and to assess their progress over the years, the Capgemini Research Institute conducted the first edition of an annual global research study, surveying 2,004 executives from 668 large organizations (annual revenues over $1 billion) across 12 countries (Australia, Canada, France, Germany, India, Italy, Japan, Netherlands, Spain, Sweden, UK, US) and key industries. 50 percent of executives were from corporate functions (e.g., strategy, sustainability, sales and marketing, accounting and finance, IT, operations) and the other 50 percent were from value-chain functions (e.g., innovation/R&D, product design and development, sourcing and procurement, supply chain and logistics, manufacturing and production). These organizations operate across industries including aerospace and defense, automotive, consumer products and retail, energy, financial services, healthcare and life sciences, industrial manufacturing, telecom, utilities, and the public sector/government. The scope of the research focused on practices and initiatives within environmental sustainability and did not include the social aspects of sustainability.

Although the sustainability vision is being integrated into remodeled business strategies and nearly two-thirds (64 percent) of executives say that sustainability is on the agenda of each of the C-suite in their organization, there is still a gap between climate ambition and concrete actions: Less than half (49 percent) have a defined list of initiatives for the next three years, and just over a third (37 percent) of respondents say their company is redesigning its operating model. In total, the level of investment into sustainability initiatives for companies with over $20 billion in revenue is just 0.41 percent of total revenue on average, whereas smaller companies (firms with revenues between $1-5 billion) are investing more (average of 2.81 percent), compared to an average 4 percent for the R&D spend by the S&P 500 companies in 2020.

The report found that many organizations are lacking a collective vision and coordination around sustainability efforts across their operations, and the various teams are still working in silos. For example, only 43 percent of respondents say that sustainability-related data is available and shared across the entire organization, and less than half (47 percent) of businesses are actively recruiting new talent with strong sustainability skills.

This reticence and hedging around adopting holistic sustainability action has fueled a disbelief that enough impactful changes will be made and followed through with in time to avoid climate catastrophe, and reflected in the most recent Sustainability Leaders’ Survey — in which 70 percent of sustainability execs said they believe it is unlikely that we will avert major damage from climate change or that major damage has already occurred.

Regulations, employee expectations currently the main drivers for sustainability initiatives

Currently, the main drivers for sustainability initiatives are pressure from current and future employees (for 60 percent of executives) and the need to pre-empt stricter future regulation (57 percent), while 52 percent of executives say they expect it will increase their revenue in the future. Most businesses are holding back because they are fearful of short-term cost implications. Sustainability is frequently seen as a cost center, rather than a value center — particularly within the context of the global macro-economic landscape. Only one in five (21 percent) respondents in the Capgemini study believe that the business case for sustainability is clear, while 53 percent believe that the cost of pursuing such initiatives outweighs the potential benefit — on the contrary, the report found that organizations that are prioritizing sustainability are already outperforming organizations that aren’t.

“Many companies understand the sustainability mandate, but organizations need to align on a clear strategy and short-term objectives to deliver concrete outcomes that will enable society to live within and not beyond the planetary boundaries,” says Cyril Garcia, CEO of Capgemini Invent and Group Executive Board Member. “It’s now or never, if we want to limit global warming to 1.5°C. Change needs to come from the top. We need to see companies pivot their business models to build sustainable products and services. This is an investment in the future. With increasing regulation and pressure from civil society, resulting in more scrutiny by consumers and investors, companies that are lagging in acting on their sustainability ambitions run a high risk of seeing their current business models become obsolete or inadequate in the coming years. Who would want to run an unsustainable company?”